Liberty and justice for all United States persons abroad

The Isaac Brock Society

35 thoughts on “New Zealand Bankers Association on FATCA”

  1. @Tim

    I’m not arguing that IRD doesn’t have some information. They do have a lot (account balances, withholding tax etc), including information on non-residents’ accounts.
    What they DON’T do is:
    1) Track which other countries these people have tax obligations to
    2) Automatically transfer information to other countries (Oz is a special case)
    Both these points are required by FACTA.

    Australia and NZ have a very close relationship, shared history and culture, very similar public policy settings, and a lot of economic/legal integration points to underpin this. It is not an analogue for FATCA.

  2. @Steven and JustMe

    I believe if you look at some of industry groups presenting(Swedbank, Australian Bankers, etc) a lot of the presentations are dealing with the Americans abroad issue which is kind of interesting because as many have said no one was thinking of that at when the legislation or the idea of FATCA was being developed. There are actually three big issues as I see it from the comment letters in totality. One is the proposed rules apply to basic checking and savings accounts which really earn little interest anywhere in the world in this day in age so there really isn’t any “tax loss” to begin with. Two is a lot of countries have mandatory service laws for ALL local residents like Canada, Aus, NZ, Sweden, France(and eventually I suspect most countries will go in this direction). Third in a lot of countries they aren’t local Americans to make setting up the W9 reporting systems are at all cost effective for 0.5% of your customer base.

    In the big meeting last month Joe Green actually asked the Treasury point blank to exclude all non resident US Persons from the application of FATCA to which the Treasury replied they would need to actually change the legislation to do that however my sense is they understood they very much have a problem on there hand. Like I said it will be interesting to the extent that EVERY presentation deals with the Americans abroad issue does it effectively start to snowball. I saw from the Australian Bankers Association comments they have a whole delegation coming to Washington for the whole week so I assume they have additional meetings on Capital Hill etc. My sense also is Democrats Abroad hasn’t had much contact with the industry groups so the hearing will I suspect be a good opportunity to make some industry contacts for them.

  4. @Tim…

    Very interesting. What you say about NZ IRD withholding makes sense to me. My greencard Auzzie wife, originally opened the account, and then only later did I sign on them much later, so maybe some withholding form was created that I didn’t know about.

    Very informative stuff on CATCA. I would love to see the US get some of its own medicine, so will look for your future post. The knowledge you bring to these subjects is very helpful…

  6. @Steven

    I think you’re reading the corporate double-speak too literally by interpreting that the NZBA “welcomes” ANY of this stuff. No one outside of the US wants FATCA in ANY way shape or form, regardless whether the arrangement is bank-to-irs or bank-to-govt-to-irs. They are simply informing the IRS that the IRS has no other choice, and they are using a mindless platitude to communicate the message by “welcoming” the framework being used with other countries. As for the “need to overcome legal impediments..” they are referring to to the IRS’s need, not the NZBA’s need.

    “it doesnt look like NZ or Australia are looking for a way out of the information sharing idea of FATCA”
    This is irrelevant. They don’t need to. FATCA is ***ILLEGAL*** in NZ and will not happen without the explicit consent and action of the NZ govt. The NZ govt will need to explicitly act to put in place a mechanism that allows the FATCA requirements to be met. And the NZ govt will not act until the US govt puts in place reciprocal measures (and not just half-arsed ones) and removes its public policy conflicts it has with NZ (i.e. barbaric FBAR penalties that will be used to discriminate against NZers).

    Now you might think any country would do anything for access to US markets. The US govt tries this trick all the time. It frequently demands that the NZ govt change legislation to allow draconian sanctions for music downloading, and to dismantle public health care drug purchasing mechanisms that “rob US pharmaceutical companies of the profits that they deserve”. The US govt demands this in exchange for paltry reductions in the US’s protectionist stance towards NZ. Through FATCA, the US govt isn’t promising a reduction in protectionist policy in return for a NZ public policy change, it is threatening an increase in the protectionist policy in unless the NZ public policy change is implemented. Thankfully (and hopefully this continues) the NZ government rarely caves.

    If the US govt wants to shut its markets to the rest of the world, then so be it. The US govt controls US policy and is free to shut its markets to the outside world; the NZ govt controls NZ policy and will continue to do so.

  7. @Tim and Moby…

    I see the NZ financial Services industry has put in a submission…http://bit.ly/IEKsub

    I notice that they point out breaches to the New Zealand Privacy Act and the New Zealand Human Rights Act of 1993, but find it surprising that Mike Moore representation from the government does not!! http://bit.ly/JoOjcp

    They are also concerned about Kiwi Saver and retirement schemes and want them excluded.
    That is their only area of recommendations.

  8. For the record Here is the actual Testimony at the FATCA May 15th public hearing from Australia/New Zealand Banking Industry…

    All right. So, Mr. Burke, you’re up.

    MR. BURKE: Good morning. My name is Anthony Burke, Policy Director of the Australian Bankers’ Association. I’m accompanied by Mr. Michael Barber, General Manager, Tax at Westpark Group, and today we’re representing both the Australian Bankers’ Association and the New Zealand Bankers’ Association.

    I speak Australian and a little bit of Kiwi, so I will speak carefully within my 10 minutes. But an American colleague of mine has volunteered to do simultaneous translation if it’s a problem.

    We appreciate the opportunity to appear before you today and the many opportunities we’ve had to work with the Department and the Service on the development of rules to implement FATCA. Working toward a balanced approach to implementation of FATCA is a top priority for our member banks and we have diverted substantial effort to the tasks through our many comments and our several trips to Washington. We wish to underscore our support for the act’s objectives and express our appreciation for the changes that the Department and Service have made in response to comments by us and many others.

    Many challenges and difficult issues remain, and this morning I want to promote further discussion by highlighting key aspects of our April 30 submission.

    Our key priorities are: Simplifying the customer identification reporting obligations through alignment with existing processes; an intergovernmental between Australia and the United States and between New Zealand and the United States; deemed compliant or comparable status for superannuation funds, retirement funds, and other low-risk of tax evasion entities; allowing for the quarantining of branches/affiliates in countries where compliance cannot be achieved; and development of a workable pass-through withholding mechanism.

    Firstly, alignment with AML/KYC practices. Home country AML/KYC laws should be applied except in those cases where the mandatory provisions affect or preclude such an approach. We urge the Treasury and the IRS to continue to work in that direction, so that there’s an operational system which can be simply and readily complied with through existing systems and administrative procedures at the banks.

    We commend Treasury and IRS for acknowledging that there needs to be greater reliance on existing AML/KYC practices, but note that there remain a number of areas in the proposed regulations where further alignment is needed which are detailed in our written comments.

    AML/KYC is fundamental to customer identification, verification, and reporting by financial institutions worldwide, including Australia and New Zealand. And a high level of alignment, a factor with AML/KYC, will assist in compliance and result in a more efficient and effective framework for FATCA identification and reporting.

    Some examples of where an enhanced environment would be a significant benefit are: Reliance on government issued identification even where such identification does not strictly meet the requirements of the draft regulations, for example, a passport doesn’t have an address; no need to retain documentation used to identify a customer, with citing and noting of pertinent details being sufficient; no requirement to re-identify our customers with documentation that was initially used to identify has expired unless the FFI becomes aware of a change in circumstances or risk; reliance on current AML standards to identify U.S. ownership and the standard for AML is 25 percent with a requirement to look down to a FATCA ownership level of 10 percent, only if there are indications of the existence of such small ownership interests and acceptance of the identification processes for pre-existing clients.

    IGA Framework and transition period. We have long advocated reliance on existing government to government reporting mechanisms, and are pleased with the initiative underway to develop and maintain the IGA framework which will provide both simplification and relief from certain home country legal restraints that would otherwise be faced by FFIs in countries which enter into an IGA. The ABA is working with the Australian government and the NZBA is working with the New Zealand government on the expectation that both countries will enter into an IGA. We are firmly of the view that an IGA is the best path to allow the resolution of a number of threshold legal issues that may otherwise inhibit the proper implementation of the FATCA regime by Australian and New Zealand FFIs.

    We acknowledge in our submission that negotiation and finalization of an IGA will have or require considerable time and effort. Accordingly, we have requested that once MOUs between the United States and our two countries have been signed, which demonstrate an intention to enter into an IGA, branches and entities operating in our countries can proceed on the basis that the provisions contained in the IGA apply.

    Low risk of tax evasion. We appreciate that the Department of Service have exercised their discretionary authority provided by FATCA to exempt certain funds that present a low risk of tax evasion. We urge the further step of clearly classifying our superannuation funds as deemed compliant for providing them the comparable relief. We have said yesterday — modified regulation for deemed compliance status for superannuation funds. To be deemed compliant, the fund would have to satisfy the following elements: The account is supervised and tax-favored; it is subject to substantial penalties for excessive contributions and early withdrawals; all contributions are employer, government, or employee contributions; there are regular reports to national tax authorities and the home country as part of a tax treaty or IGA with the United States.

    Quarantining of noncomplying branches. The proposed regulations allow for FFIs that are domiciled in Australia and New Zealand to be compliant even when those FFIs have limited affiliates or branches that are located in countries whose laws and regulations make it impossible for them to fully comply with FATCA. Now when such compliance expires on 31 December 2015, exacerbation rises two points. First, we have requested an extension of time to 31 December 2017 to allow for our FFIs to persuade local governments to allow for FATCA compliance in these jurisdictions. And to the extent the legislative change is not forthcoming, to develop strategies to address the inability to comply in those jurisdictions. Secondly, we have proposed that the FFI should be able to quarantine or orphan the limited affiliate or branch and treat such affiliate branch as a nonparticipating FFI without impacting the compliance status of the FFI and its other complying branches and affiliates.

    Pass-through. Pass-through remains a difficult and challenging topic. We appreciate the postponement in the proposed rules of the effective date for this requirement, as well as the relief from pass-through withholding for recalcitrant account holders who would accompany entry into an IGA.

    We had previously offered a pass-through proposal and our April 30 comments offer a new one focused on the Blocker concept. The Blocker proposal is intended to address, in a construction manner, concerns that some have in terms of gaining access to U.S. capital markets remains that will enable them to do so without exposure to FATCA.

    A Blocker can be broadly defined as an entity whose primary business is recharacterizing U.S. source income as foreign source income. In order to be classified as a Blocker, the following needs to apply on our suggestion: The entity must be a participating FFI. It would not be an FFI as defined in the regs that accepts deposits on the ordinary course of banking or similar business on the basis that it’s highly unlikely that the potential — prudential regulator, rather, of an FFI would approve risk management practices that allow for disproportionately large allocation of the FFIs assets to be invested in a single market, especially outside the home jurisdiction. Participating FFI classifications of Blocker would be determined by reference to specific tests such as an ownership test and an assets test. In addition, any participating FFI with more than 50 percent of interest held by nonparticipating FFIs, or recalcitrant account holders, would automatically be classified as a Blocker. The Blocker will be obliged to deduct and withhold tax with respect to foreign pass-through payments by applying the pass-through payment percentage made to recalcitrant account holders and nonparticipating FFIs. If payment and withholding tax levels are above a specified but realistic and practical de minimis level which suggests that withholding tax be deducted on any payments if withholding tax amount exceeds the de minimis level.

    We seek your guidance on how best to proceed with this approach. For each of our recommendations in our submission, we’ve suggested revisions to the pertinent proposed regulation. Our submission also includes data on some other more technical issues not covered in my remarks today.

    I look forward to continuing to work with the Treasury and the IRS, tomorrow for example, and the implantation of the act and the development of multilateral approaches to combating tax evasion. Thank you very much.

  9. Pingback: The Isaac Brock Society - So Where were the Journalist on the May 15th FATCA Public Hearing?

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